Question

Pedregon Corporation has provided the following information: Cost per Cost per Period Unit $6.45 $3.30 $1.25 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Sales commissions Variable administrative expense Fixed selling and administrative expense $16,500 $0.45 $8.50 $ 4,200 If 5,000 units are sold, the total variable cost is closest to: Multiple Choice $78,500 $69.250 $55,000 $59.750

Answer 1

Variable Cost $ 59,750 Working Notes: Compuatation of Variable Cost per Unit Particulars Cost per Unit Direct Materials $ 6.45 Direct Labor $ 3.30 Variable Manufacturing Overhead $ 1.25 Sales Commissions $ 0.45 Variable Administrative Expense $ 0.50 Variable Cost per Unit $ 11.95 Tota Variable Cost for 5,000 units sold = 5,000*$11.95 = $59,750 Low level of activity 3,100 Machine hours Working Notes: Variable Cost per unit = $4 Variable Cost for 3,300 Machine hours = 3,300*$4 = $13,200 Total Cost = Variable Cost + Fixed Cost $19,200 = $13,200 + Fixed Cost Fixed Cost = $19,200 - $13,200 = $6,000 Low level of activity total cost = $18,400 Fixed cost remains same for any level of activity either increase or decrease of activity. Variable cost for low level of activity = $18,400-$6,000 = $12,400 Low level of activity = Variable Cost / Variable cost per unit = $12,400/$4 = 3,100 Machine hours